State of Illinois
90th General Assembly
Legislation

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90_SB1380

      815 ILCS 205/4.1a         from Ch. 17, par. 6406
          Amends the Interest Act.  Provides that it is  lawful  to
      impose upon a  borrower a cancellation fee not exceeding $500
      if the borrower cancels a home equity line of credit.
                                                     LRB9010425JSmg
                                               LRB9010425JSmg
 1        AN ACT to amend the Interest Act by changing Section 4.
 2        Be  it  enacted  by  the People of the State of Illinois,
 3    represented in the General Assembly:
 4        Section 5.  The  Interest  Act  is  amended  by  changing
 5    Section 4 as follows:
 6        (815 ILCS 205/4) (from Ch. 17, par. 6404)
 7        Sec. 4.  General interest rate.
 8        (1)  In  all written contracts it shall be lawful for the
 9    parties to stipulate or agree that 9% per annum, or any  less
10    sum  of  interest, shall be taken and paid upon every $100 of
11    money loaned or in any manner due and owing from  any  person
12    to  any  other person or corporation in this state, and after
13    that rate for a greater or less  sum,  or  for  a  longer  or
14    shorter time, except as herein provided.
15        The  maximum  rate  of  interest  that  may  lawfully  be
16    contracted for is determined by the law applicable thereto at
17    the  time  the  contract  is  made.   Any  provision  in  any
18    contract,  whether  made  before or after July 1, 1969, which
19    provides for or purports  to  authorize,  contingent  upon  a
20    change  in  the  Illinois law after the contract is made, any
21    rate of interest greater than the maximum lawful rate at  the
22    time the contract is made, is void.
23        It  is  lawful  for  a  state  bank  or  a  branch  of an
24    out-of-state bank, as those terms are defined in Section 2 of
25    the Illinois Banking  Act,  to  receive  or  to  contract  to
26    receive and collect interest and charges at any rate or rates
27    agreed upon by the bank or branch and the borrower.
28        It  is  lawful  to  receive or to contract to receive and
29    collect interest and charges as authorized by this Act and as
30    authorized by the Consumer Installment Loan Act  and  by  the
31    "Consumer  Finance  Act",  approved  July 10, 1935, as now or
                             -2-               LRB9010425JSmg
 1    hereafter amended.  It is lawful to charge, contract for, and
 2    receive any rate or amount of interest or  compensation  with
 3    respect to the following transactions:
 4             (a)  Any loan made to a corporation;
 5             (b)  Advances  of  money, repayable on demand, to an
 6        amount  not  less  than  $5,000,  which  are  made   upon
 7        warehouse  receipts,  bills  of  lading,  certificates of
 8        stock, certificates of deposit, bills of exchange,  bonds
 9        or  other  negotiable  instruments  pledged as collateral
10        security for such repayment, if evidenced by a writing;
11             (c)  Any credit transaction  between  a  merchandise
12        wholesaler  and retailer; any business loan to a business
13        association or copartnership or to a  person  owning  and
14        operating a business as sole proprietor or to any persons
15        owning and operating a business as joint venturers, joint
16        tenants   or   tenants  in  common,  or  to  any  limited
17        partnership, or to any trustee  owning  and  operating  a
18        business   or  whose  beneficiaries  own  and  operate  a
19        business, except that any loan which is secured (1) by an
20        assignment of  an  individual  obligor's  salary,  wages,
21        commissions or other compensation for services, or (2) by
22        his  household  furniture  or  other  goods  used for his
23        personal, family or household purposes  shall  be  deemed
24        not  to  be a loan within the meaning of this subsection;
25        and  provided  further  that  a  loan   which   otherwise
26        qualifies  as  a business loan within the meaning of this
27        subsection shall not  be  deemed  as  not  so  qualifying
28        because  of the inclusion, with other security consisting
29        of business assets of any such obligor,  of  real  estate
30        occupied   by   an   individual  obligor  solely  as  his
31        residence.  The term "business" shall be deemed to mean a
32        commercial, agricultural or industrial  enterprise  which
33        is  carried  on  for the purpose of investment or profit,
34        but  shall  not  be  deemed  to  mean  the  ownership  or
                             -3-               LRB9010425JSmg
 1        maintenance of real  estate  occupied  by  an  individual
 2        obligor solely as his residence;
 3             (d)  Any loan made in accordance with the provisions
 4        of  Subchapter  I of Chapter 13 of Title 12 of the United
 5        States Code, which is designated as  "Housing  Renovation
 6        and Modernization";
 7             (e)  Any  mortgage  loan  insured  or  upon  which a
 8        commitment to insure has been issued under the provisions
 9        of the National Housing Act, Chapter 13 of  Title  12  of
10        the United States Code;
11             (f)  Any  mortgage  loan  guaranteed or upon which a
12        commitment  to  guaranty  has  been  issued   under   the
13        provisions  of  the Veterans' Benefits Act, Subchapter II
14        of Chapter 37 of Title 38 of the United States Code;
15             (g)  Interest  charged  by  a   broker   or   dealer
16        registered  under the Securities Exchange Act of 1934, as
17        amended, or registered under the Illinois Securities  Law
18        of  1953,  approved  July  13,  1953, as now or hereafter
19        amended, on a debit balance in an account for a  customer
20        if  such debit balance is payable at will without penalty
21        and is  secured  by  securities  as  defined  in  Uniform
22        Commercial Code-Investment Securities;
23             (h)  Any  loan  made by a participating bank as part
24        of any loan guarantee program which  provides  for  loans
25        and   for  the  refinancing  of  such  loans  to  medical
26        students, interns and residents and which are  guaranteed
27        by   the   American  Medical  Association  Education  and
28        Research Foundation;
29             (i)  Any  loan  made,  guaranteed,  or  insured   in
30        accordance  with  the  provisions  of  the Housing Act of
31        1949, Subchapter III of Chapter 8A of  Title  42  of  the
32        United  States  Code  and the Consolidated Farm and Rural
33        Development Act, Subchapters I, II, and III of Chapter 50
34        of Title 7 of the United States Code;
                             -4-               LRB9010425JSmg
 1             (j)  Any loan by an employee pension  benefit  plan,
 2        as  defined  in  Section 3 (2) of the Employee Retirement
 3        Income Security Act of 1974 (29 U.S.C.A. Sec.  1002),  to
 4        an  individual  participating in such plan, provided that
 5        such loan satisfies the prohibited transaction  exemption
 6        requirements  of  Section  408  (b) (1) (29 U.S.C.A. Sec.
 7        1108 (b) (1)) or Section 2003 (a) (26 U.S.C.A. Sec.  4975
 8        (d)  (1))  of the Employee Retirement Income Security Act
 9        of 1974;
10             (k)  Written contracts, agreements or bonds for deed
11        providing for installment purchase of real estate;
12             (1)  Loans secured by a mortgage on real estate;
13             (m)  Loans   made   by   a   sole    proprietorship,
14        partnership, or corporation to an employee or to a person
15        who   has   been   offered   employment   by   such  sole
16        proprietorship, partnership, or corporation made for  the
17        sole  purpose  of  transferring an employee or person who
18        has been offered employment to another office  maintained
19        and   operated   by   the   same   sole   proprietorship,
20        partnership, or corporation;
21             (n)  Loans to or for the benefit of students made by
22        an institution of higher education.
23        (2)  Except for loans described in subparagraph (a), (c),
24    (d),  (e),  (f) or (i) of subsection (1) of this Section, and
25    except to the extent permitted by the applicable statute  for
26    loans made pursuant to Section 4a or pursuant to the Consumer
27    Installment Loan Act:
28             (a)  Whenever  the  rate  of interest exceeds 8% per
29        annum on any written contract, agreement or bond for deed
30        providing for the  installment  purchase  of  residential
31        real  estate,  or  on  any  loan secured by a mortgage on
32        residential real estate, it shall be unlawful to  provide
33        for a prepayment penalty or other charge for prepayment.
34             (b)  No   agreement,   note   or   other  instrument
                             -5-               LRB9010425JSmg
 1        evidencing a loan secured by a  mortgage  on  residential
 2        real  estate,  or written contract, agreement or bond for
 3        deed  providing   for   the   installment   purchase   of
 4        residential  real  estate,  may provide for any change in
 5        the contract rate of interest during  the  term  thereof.
 6        However,  if  the  Congress  of  the United States or any
 7        federal agency authorizes any class of lender  to  enter,
 8        within  limitations,  into  mortgage contracts or written
 9        contracts, agreements or bonds for deed in which the rate
10        of interest  may  be  changed  during  the  term  of  the
11        contract,  any  person, firm, corporation or other entity
12        not otherwise  prohibited  from  entering  into  mortgage
13        contracts  or  written contracts, agreements or bonds for
14        deed in Illinois may enter  into  mortgage  contracts  or
15        written  contracts, agreements or bonds for deed in which
16        the rate of interest may be changed during  the  term  of
17        the contract, within the same limitations.
18             (c)  For  any  home equity line of credit secured by
19        residential real estate of a borrower, it shall be lawful
20        to charge a cancellation fee not exceeding  $500  to  the
21        borrower  in  the  event the borrower cancels the line of
22        credit.
23        (3)  In any contract  or  loan  which  is  secured  by  a
24    mortgage,  deed  of  trust,  or conveyance in the nature of a
25    mortgage, on residential real estate, the interest  which  is
26    computed,  calculated, charged, or collected pursuant to such
27    contract or loan, or  pursuant  to  any  regulation  or  rule
28    promulgated  pursuant  to  this  Act,  may  not  be computed,
29    calculated, charged or  collected  for  any  period  of  time
30    occurring  after  the  date  on which the total indebtedness,
31    with the exception of late  payment  penalties,  is  paid  in
32    full.
33        For purposes of this Section, a prepayment shall mean the
34    payment of the total indebtedness, with the exception of late
                             -6-               LRB9010425JSmg
 1    payment  penalties if incurred or charged, on any date before
 2    the date specified in the contract or loan agreement on which
 3    the total indebtedness shall be paid in full, or  before  the
 4    date  on  which all payments, if timely made, shall have been
 5    made.  In the event of a prepayment of the indebtedness which
 6    is made on a date after the date on  which  interest  on  the
 7    indebtedness  was  last  computed,  calculated,  charged,  or
 8    collected  but  before the next date on which interest on the
 9    indebtedness was to  be  calculated,  computed,  charged,  or
10    collected,  the  lender  may  calculate,  charge  and collect
11    interest on the indebtedness for  the  period  which  elapsed
12    between the date on which the prepayment is made and the date
13    on  which  interest  on  the  indebtedness was last computed,
14    calculated, charged or collected at a rate equal to 1/360  of
15    the  annual  rate  for  each day which so elapsed, which rate
16    shall be applied to the indebtedness outstanding  as  of  the
17    date  of prepayment.  The lender shall refund to the borrower
18    any interest charged or collected which  exceeds  that  which
19    the  lender  may  charge or collect pursuant to the preceding
20    sentence. The provisions of this amendatory Act of 1985 shall
21    apply only to contracts or loans entered into on or after the
22    effective date of this amendatory Act, but shall not apply to
23    contracts or loans entered into on or after  that  date  that
24    are   subject  to  Section  4a  of  this  Act,  the  Consumer
25    Installment Loan Act, or the Retail Installment Sales Act, or
26    that provide  for  the  refund  of  precomputed  interest  on
27    prepayment in the manner provided by such Act.
28    (Source: P.A. 89-208, eff. 9-29-95.)

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